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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
challenges for the banks due to introduction of Islamic banking practices in Pakistan. The
conventional banking system based to traditional interest based mechanism is deep rooted
in the industry to cope with the challenges. The impressive progress of banking sector in
Pakistan requires a study to assess the influence of service quality offered by
conventional banks on its performance. It is reported that Pakistani banking sector
experience an expansion in its branch network and banking assets due to conducive
environment during the last few years (Economic Survey of Pakistan, 2007-08).
This study examines the relationship between service quality and performance of
conventional banks in Pakistan. It also attempts to estimate the magnitude of relationship
among selected variables in the local settings. There are a number of studies regarding
different aspects of banks across the globe but there is an acute shortage of literature
regarding Pakistani banking sector. This study is an effort to fill this gap address the
perception of service quality among bank customers and performance of selected banks
in Pakistan. Similarly, existence of Islamic banks in Pakistan also necessitated assessing
the performance of conventional banks on the basis of service quality. It is found that
Pakistani banks had shown better performance due to banking reforms especially due to
financial liberalization and deregulation of banking sector (Farooq et al., 2010).
However, it is found that Islamic banks have performed better as compared to
conventional banks in Pakistan. (Ahmad, Rehman & Saif, 2010).
2. Literature Review
Banks are actively supporting the business and trade activities especially after the
industrial revolution. Its importance is getting popularity with the passage of time.
Everyone is striving to realize greater profits by delivering quality services to exist in the
market. The service quality offered by banks is an important element for customers to
quit or remain with a specific bank. Similarly, performance evaluation of banks could be
beneficial for the successful survival in the industry. Service quality in banking sector is
frequently investigated across the globe (Gronoos, 1982; Parasuraman et al. 1985, 1988,
1991; Sureshchander et al. 2002; Lopez et al., 2006; Ahmad et al., 2010). It could be
linked with market orientation, organizational learning, human resource productivity,
quality improvement or any other component (Day, 1994; Banker & Sinkula, 1999;
Santos-Vijande et al., 2005).
Morre (1987) found that service quality could enhance the competitive position of the
organization for long term benefits. It is reported that service quality is considered very
important indicator towards customer satisfaction (Spreng & Machoy, 1996). Similarly, it
is suggested that service quality could help to gain competitive advantage to maintain
long-term relationship with customers (Zeithmal et al. 2000). This study investigates the
effect of service quality on performance of conventional banks in Pakistan. Banks
provide financial inter-mediation, consultancy and agency services that are diversified
with the passage of time. Services are different from goods because they are intangible as
they cannot be seen, touched or felt; perishable as we are unable to store them;
inseparable because they are attached with a service provider, and insubstantial due to
heterogeneity (Parasuraman et al. 1985; Hoffman & Bateson, 2002).
In today's global, dynamic and competitive environment banks should improve and
diversify their products and services to enhance their performance for successful survival.
Performance measurement became indispensable for the successful survival banks due to
stiff competition and customers' awareness of service quality. It is reported that Pakistani
COPY RIGHT © 2011 Institute of Interdisciplinary Business Research 151
JANUARY 2011
VOL 2, NO 9